Geithner Calls China Currency Reforms Promising

By CHRISTOPHER BODEEN | May 3, 2012 | 11:55 PM EDT

Chinese Vice Premier Wang Qishan, right, talks to U.S. Treasury Secretary Timothy Geithner, left, and U.S. Secretary of State Hillary Rodham Clinton as they attend a group photo after the opening ceremony of U.S.-China Strategic and Economic Dialogue at the Diaoyutai state guesthouse in Beijing, Thursday, May 3, 2012. (AP Photo/Jason Lee, Pool)

Geithner, along with U.S. Secretary of State Hillary Clinton, met Hu during an annual high-level dialogue at which complaints about currency controls are a key issue. The dialogue has been overshadowed by a tussle over a Chinese legal activist but comes as pressure on the U.S. and other Western governments to create jobs are fueling disputes with Beijing.

Geithner and other U.S. officials at this week's talks have urged Chinese leaders to press ahead with promised market-oriented reforms they hope will expand sales for foreign companies in China's heavily regulated economy.

"We consider the broad direction of the economic reforms that you have laid out — to move to a more market-oriented exchange rate system, to expand consumption and domestic demand, to open up the Chinese economy further to foreign competition, to create a more modern financial sector — we think these are very promising reforms," Geithner told Hu.

Beijing has allowed its yuan to strength gradually and in April widened the band in which the tightly controlled currency is allowed to trade each day. But changes have been too slow to mollify critics. Some U.S. lawmakers are calling for punitive tariffs on Chinese goods if Beijing fails to act faster.

In a speech last week, Geithner complained an undervalued yuan was a source of "unfair competition" and hurts foreign companies at a time when China's trading partners are trying to boost exports. He called for a "stronger, more market-determined" exchange rate and said that would help the global economy.

On Friday, Geithner told Hu that despite "inevitable tensions" in U.S.-Chinese ties, "we are building a stronger economic relationship."

Hu said the annual dialogues have "achieved positive agreements" but did not comment on specific disputes during a portion of the meeting reporters were allowed to see.

Beijing is in the midst of a multiyear effort to boost domestic consumption and reduce reliance on exports and investment but change has been slow.

Foreign governments and business groups complain Beijing is hampering market access and trying to shield Chinese companies in promising industries such as renewable energy despite its market-opening pledges.

The annual talks are aimed at heading off trade clashes between the world's two biggest economies and promoting cooperation on a wide array of environmental, financial and other issues. This year's round includes U.S. Federal Reserve chairman Ben Bernanke, his Chinese counterpart Zhou Xiaochuan, and top trade, energy and finance officials from both sides.

Washington welcomed Beijing's move in April to widen the daily trading band within which the yuan is allowed to fluctuate from 0.5 percent to 1 percent but thinks it failed to go far enough to create a market-driven exchange rate, according to a senior administration official with Geithner's delegation.

In talks Thursday, U.S. officials pressed China to lower import barriers and create a more "level playing field" for foreign companies, said the official, who briefed reporters about the talks on condition of anonymity.

The United States reported its trade deficit with China reached an all-time high of $295.5 billion last year, up 8.2 percent from 2010's previous record.

The U.S. Commerce Department announced last month it would impose new import fees on Chinese-made solar panels after concluding manufacturers received improper subsidies. Chinese authorities announced their own probe in November into whether U.S. support for renewable energy companies hurts foreign suppliers.